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US treasury secretary Scott Bessent is getting more desperate by the day as he tries hard to persuade the global financial markets that the fundamentals of the US economy are very strong, and there is no reason for other large economies to sell US bonds in panic and buy more gold instead.

One tipping point was that gold accumulation by global central banks crossed their holdings of US treasury assets recently. US’s fickle economic and foreign policy combine have led to its long-term creditworthiness being questioned by most large economies, some of whom are allies. For instance Japan, the largest holder of US treasury paper ($1.2 trillion) has been dumping the Yankee bonds in recent months, as the US war on Iran caused massive inflation fears worldwide and led to an unprecedented fall in the Japanese currency. Japan started selling US dollar assets to defend its currency. This caused US long-term bond yields to rise steadily, making the US’s own borrowings costlier than ever.   This has been happening over the past few months as Trump waxed  and waned on the peace deal with Iran. Bessent has been in touch with Japan during this entire period.

Also, in spite of his best efforts to coordinate with Japan to prevent large scale dumping of US bonds, Bessent has not been able to suppress the bottom-up sentiment of fear and lack of confidence in Trump’s behaviour. This week, Japan again dumped over $26 billion of US bonds despite Bessent’s claim that the US was working with Japan closely to shore up the yen.

Bessent did attempt something very unorthodox, which the US government has never done before. The US conducted a significant sale of euros to buy Japanese yen in order to persuade Japan not to sell US bonds. Europeans were not just surprised but also upset that the US had made this move........

© The Wire